‘Shaky’ insolvency forecast for 2011

The latest insolvency figures from the Australian Securities and Investments Commission show 455 companies nationwide were put into external administration in January, down 40% from December, but experts still predict a bumpy road ahead.

According to PPB Advisory partner Mark Robinson, the decline reflects that fact that most businesses were on holiday in January, saying the slump is fairly typical for that month.

However, financial advisory firms are expecting to see a spike due to the recent natural disasters over the next three to six months, particularly in Queensland and Victoria.

In December, Insolvency and Trustee Service Australia statistics ranked Queensland as the most likely state to go bankrupt.

According to Robinson, the retail and property sectors have been the hardest hit, and high levels of appointments will continue in those sectors as well as for small businesses.

A recent Dun & Bradstreet report reveals 10,000 firms ceased trading in 2010 compared to just over 8,000 in 2009.

Businesses with between one and five employees experienced a 46% increase in failures in 2010 while those with between six and 19 members of staff suffered a 20% increase in closures.

Dun & Bradstreet chief executive Christine Christian says she expects a similar rate of business failures this year.

“There were a lot of redundancies in 2009 and people have used that to start-up businesses or buy franchises,” she said.

“They thought the worst was over and that confidence was largely unaffected in Australia in comparison to other countries following the GFC.”

“The next couple of years will be shaky. Unless banks become more responsive for small businesses by loosening credit terms, we’ll see similar rates of delinquency and decline this year.”

Turnaround specialist Michael Fingland, of Vantage Performance, says SMEs will make up the bulk of insolvency figures in 2011, although it won’t become evident until around April.

“SMEs should be focused on maintaining a tight focus on working capital – that’s what most business owners don’t do, partly because it’s out of their comfort zone.” he says.

“Take this time to look at the products and services you provide. Do a thorough analysis of your profits and gross margins and be ruthless in culling products and services that are not meeting your benchmarks.”

“You also have to be ruthless with which [business] customers you maintain by saying, ‘We can’t afford to carry your debt’. Most business owners won’t take that hard step.”